The sharing economy is booming right now. Expected to top $335 billion by 2025 according to PwC, the gig economy, as it’s otherwise known, already touches most of our lives — from hailing a ride on Uber or Lyft to finding a place to stay on Airbnb. Essentially, it’s an economic system whereby assets or services are
shared between private individuals via the Internet, making it relatively easy to set
up and with little overhead.

But the often globally networked nature of the sharing economy presents
challenges, along with a workforce comprised heavily of independent contractors
exposed to a host of risks on a daily basis. Add to that a lack of loss history and
increasing regulatory scrutiny, and it’s often too expensive or hard for these
companies to find cover.

However, an alternative solution has now emerged for those companies willing
to take on their own risks. Through owning a captive, companies can retain more
of their risk and craft manuscripted coverage language specific tailored to their
exposures, as well as gain direct access to reinsurers willing to underwrite those risks.

Lyft and Uber, the ride sharing services, were among the first to take the plunge,
setting up captives in Hawaii, and now more are hopping on the bandwagon.

SHARING ECONOMY RISKS

Melissa Neis, vice president at Parr Insurance Brokerage, said the sharing economy
is difficult to insure because it is a relatively new area lacking sufficient loss history.

“It can be tricky because there’s a lack of actuarial data to support a long-termrisk analysis, so it’s hard for insurers to understand what kind of pricing willsupport the exposures concerned,” she said. “Also, as technology continues toadvance and companies’ platforms and business models are constantly evolving,their exposures can also significantly change, meaning that their policy languagehas to be recrafted, making them difficult to underwrite.”Monica Everett, vice president, sales, York Alternative Risk at York RiskServices Group, said that what makes these companies even harder to assess istheir ever-changing, often global workforce and the risks they face, with manyindependent contractors working for them who are not classified as employeesand so are not covered under workers’ compensation.

“Where does the risk for a company start and stop?” she said. “Then there
is the issue of U.S. Courts granting settlements to independent contractors for
injuries sustained in the course of their assignment.

“This often means that companies must insure independent contractorsregardless of how the companies classify them. In addition, an independentcontractor’s job can be as risky as that of a full-time employee.

“Depending on the circumstances, companies may have limited control overthe safety of these workers, which adds to the complexity of the risk.”Ward Ching, managing director at Aon Global Risk Consulting, added that oftenthe business models of companies in the gig economy don’t fit the class codes andmold of traditional companies with insurable risks such as workers’ compensationand general liability, making it harder for underwriters to assess their exposures.

“The terminology is changing, the exposures are changing and the speed
of change is just amazing,” he said. “Their policies and procedures, and whole
approach to risk is changing on an almost quarterly or more frequent basis
making it hard for traditional insurers to keep up.”

Sean Rider, executive vice president
and managing director, consulting and
development at Willis Towers Watson,
said that another reason these risks
are so difficult to assess is they often
cross over between different types of
insurance including property/casualty,
accident and health, and personal lines.

“Because they often transcend the
silos between commercial and personal
activities, traditional carriers struggle
with crafting coverage that meets their